The Global Slowdown in Medical Costs

We tend to think of health care as a local good. Most people use the doctor or hospital in their neighborhood. China does not export medical care. Health and life spans differ from country to country, even county to county.

But when it comes to health care spending, the picture is starting to look more global. After decades when health spending in the United States grew much faster than it did in other Western countries, a new pattern has emerged in the last two decades. And it has become particularly pronounced since the economic crisis. The rate of health cost growth has slowed substantially since 2000 in every high-income country, including the United States, Canada, Britain, France, Germany and Switzerland, according to data from the Organization for Economic Cooperation and Development.

“We used to be different,” said Louise Sheiner, a senior fellow at the Brookings Institution and a former senior economist at the Federal Reserve. “Since about 1990, we’ve looked about the same.”

The synchronized slowdown offers reasons to be skeptical about neat explanations for the trends in any one country, be it local changes in medical practices or Obamacare’s various attempts to slow cost growth. The slowdown has also reduced budget pressures around the world, a welcome development as baby boomers are retiring. Just this week, the Congressional Budget Office reduced its long-term forecasts for spending in the Medicare program, one of several recent reductions that mean the program’s solvency is looking safer than it has in years.

What’s behind the pattern? Economic growth around the industrialized world has been slow for much of the last decade, and the aging of the population in much of the world has also created fiscal pressures to rein in health spending. But these economic and political forces — which in turn leave governments and households with less money to purchase medical care — do not appear to be the only causes.

The world’s health-care systems are also converging in important ways. New drugs and medical advances, which were once adopted locally and spread more slowly, are now experiencing international launches. Medical technology companies are increasingly global, and seeing regulatory approval in many markets at once. Strategies that can reduce the need for expensive hospital stays, such as performing surgeries in outpatient clinics, are expanding around the world.

Findings from medical research and the ways that doctors practice are also spreading faster and wider. “We’re learning from other countries, and the best practices take a year or two to diffuse, whereas in the past they might have taken five or 10 years,” said Gerard Anderson, a public health professor at Johns Hopkins. “We’re getting a convergence because of a more rapid diffusion of information.”

Two recent papers highlighted the trend. One in The Journal of the American Medical Association compared the United States with countries in the O.E.C.D. Its author, David Squires of the Commonwealth Fund, a New York health care research group, concluded that the similarities in spending growth suggested that “the factors that stimulated the slowdown in the United States also affected other industrialized countries.”

The other paper, from the O.E.C.D.'s own economists, made a similar point, highlighting that what really differentiates the United States from other countries is the high prices we have long paid for medical care, not big differences in how doctors are treating their patients.

In the United States, the health spending slowdown has eased workers’ insurance rate increases and taken the pressure off the federal budget deficit. Health economists here are puzzling over the precise causes of the current slowdown. But they largely agree on a few factors.

The economic crisis drove down demand for new medical services, as people lost their jobs and coverage, or simply decided to put off elective procedures like knee replacements. Tougher times also led to policy tightening by federal and state officials — and employers, who have increasingly moved from generous health insurance plans to those that expose their workers to more out-of-pocket costs.

The Affordable Care Act, also known as Obamacare, expands coverage to new people, but over the last few years, it has also cut back on spending in Medicare, much of it from lower reimbursements to hospitals and insurers. The law also includes attempts to make the medical system more efficient by reducing forms of care that do not make people healthier.

At the same time, the development of new expensive medical technologies has slowed for a decade or so. That trend has been most pronounced in the pharmaceutical market. Many big blockbuster drugs lost their patent protection, including Lipitor, the best-selling drug in history. Few expensive, mass-market medications have come to replace them.

Many of these same forces affect other countries. They also had fewer new drugs, devices and procedures to adopt. And their economies were slammed by the global recession.

Other countries also have political mechanisms to reduce spending. With great political controversy, the Affordable Care Act tries to mimic some of these mechanisms, such as a board of experts that will consider whether treatments are effective. Most other countries have aggressive regulatory systems that allow government officials to tamp down health spending directly when times get tough.

Still, the similarities among countries are not the same thing as destiny. “Health care slowed down here and it slowed down there, and that doesn’t mean it’s all entirely cyclical,” said Peter Orszag, a vice chairman at Citibank and a former top official at the federal Office of Management and Budget and the Congressional Budget Office, at a meeting of health economists this week.

Mr. Orszag, an architect of the Affordable Care Act, says the American spending slowdown has been caused in part by changes in the practice of medicine that go deeper than economic and technological trends. He hopes the United States will be able to sustain those changes and keep spending growth low far into the future, whatever the rest of the world does.

But the growing globalization of health spending means it may be hard for the United States to pull away from whatever international trend comes next. And that means policy makers here should shy away from declaring victory just yet.

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